Robert Goodwill: When I was in Helmand province in February, I was surprised to learn that many of the farmers would prefer to grow wheat, which is now highly priced on world markets, to poppies. However, they had to grow poppies because of Taliban intimidation. When does the Secretary of State think that we will have the security situation sufficiently under control for Afghan farmers to feed their own people and not feed the habits of people in the west?

Des Browne: Our forces in Iraq still have a wide-ranging and extremely important job to do. They continue to play a positive role in helping to bring security and stability to Iraq. In Baghdad, we have over 200 senior officers and supporting staff working in the coalition headquarters. In the south, the primary focus of our forces is now on training and mentoring the 14th division of the Iraqi army and enhancing command and control capabilities in Basra, including at the Basra operations command. The 14th division remains some months from becoming fully operational.
	We also support more directly the Iraqi security forces in their efforts to ensure the rule of law in Basra. In recent weeks, this has included providing fast jet and helicopter support and surveillance, as well as logistic and medical support. In addition to the focus on the Iraqi army, British forces are also heavily involved in mentoring and training the Iraqi navy, supporting the Department of Border Enforcement and helping to protect the oil platforms. Finally, we facilitate economic reconstruction efforts—notably, setting Basra's international airport on the path to international accreditation.

Andrew Murrison: In the light of the welcome comments by the Commander in Chief, Land, over the weekend, the Minister might like to express his regrets for the inadequacies of the 2005 armed forces compensation scheme that General Richards has found so wanting, as the current review implies. Meanwhile, the Adjutant General continues to push private insurance schemes such as Pax that cost the private soldier a month's pay to cover risks run on our behalf in Iraq, Afghanistan and the Balkans? Why does this month's gimmick—the armed forces benefits calculator, designed to convince service men that they have never had it so good—completely ignore the disbenefit of having to take out personal insurance to cover occupational risk?

Bob Spink: what recent assessment he has made of levels of morale of British troops in Iraq; and if he will make a statement.

Bob Ainsworth: From the discussions I have had with our armed forces in both Iraq and Afghanistan, broadly speaking they ignore what they read in the media and they know what the facts are. The fact with regard to Basra is that our forces are involved in a very similar way to the American forces. The American forces came down to Basra with the additional Iraqi forces. Our own forces are in Basra assisting the Iraqi 14th Division, which they helped to give the capability that it is now showing in its success in Basra town. Although we should not overstate our own role, the Iraqis would not be capable of doing what they are now doing in Basra if it had not, in part, been for the contribution that the British forces have made and continue to make. We should not run them down just because the press do.

Bob Ainsworth: I am very happy to do as the hon. Lady asks by paying tribute to those particular forces, and to all our forces in both Iraq and Afghanistan. However, I must say to her that despite the fact that our armed forces are stretched—we recognise that that is the case—and working hard, the morale of our forces in theatre is good. When I go out to theatre, I find that not only is it good, but that those forces at the sharp end on the front line who are in the most austere of circumstances have the best morale. They are soldiering—they are achieving and doing what they wanted and trained to do. Their morale is good, and they are doing an excellent job and they deserve the support of the House.

Bob Ainsworth: We believe that it is important not to oblige families to travel the kind of distances that they are required to travel in order to attend inquests in the south of England when they are based in Scotland and their loved ones who have died came from parts of Scotland. That is why we have been pursuing the matter with the Scottish Executive and will continue to do so. As I have said, we have made representations over time, and we hope that a solution to the problem will be found because that would be in the interests of Scottish families.

Des Browne: I am grateful to my hon. Friend for prior notice of that specific question. I am grateful for the opportunity to answer it and to displace some misinformation in the public domain about the AWE at Burghfield. The AWE is able to carry out live nuclear work at Burghfield. The nuclear installations inspectorate has provided constructive criticism about areas where safety can be improved or where there are shortfalls in the processes or systems. That is a normal part of its regulatory role and does not mean that there are serious concerns about the safety of the AWE at Burghfield. If the inspectorate had serious concerns, it could use its enforcement powers to stop work there and it has never done so.

Bob Ainsworth: No item of protective clothing or equipment can guarantee protection against every kind of attack or accident, but I can tell my hon. Friend that the helmet offers the highest level of protection compared with the combat helmets of many other nations. It is very well thought of by our troops, and it is fitted with shock-absorbing pads—the substance of the campaign that she raised which, of course, we are well aware of.

Mark Hoban: I beg to move amendment No. 1, in clause 5, page 2, line 36, leave out '21%' and insert '20%'.

Alan Haselhurst: With this it will be convenient to discuss the following amendments: No. 7, in page 2, line 37, at end insert—
	'(1A) Subsection (1)(a) shall come into force on a day which the Treasury may by order appoint.
	(1B) No order may be made under subsection (1A) until—
	(a) the Treasury has compiled and laid before the House of Commons a report containing an assessment of the impact on the competitiveness of small companies as a result of changes to the small companies rate of corporation tax, and
	(b) the report has been approved by a resolution of the House of Commons.'.
	No. 2, in page 3, line 1, leave out '7/400ths' and insert '1/40th'.

Mark Hoban: My right hon. Friend makes a good point. I, too, have been frustrated at how anything that the Government spend their money on counts as investment, when sometimes, as I know from the parliamentary questions that I have tabled, it does not necessarily equate to spending that helps taxpayers.
	To return to amendment No. 1, because of the nature of our proceedings, we have not tabled amendments in the Committee of the whole House that deal with the annual investment allowance, which we want to scrutinise in some detail in Committee. However, we believe that we should scrap the annual investment allowance and use the proceeds to fund a cut in the small companies rate of tax to 20 per cent. That would be in the best interests of business and is entirely consistent with our approach of having simpler, flatter and fairer taxes, by broadening the tax base through reducing distortionary relief and using the revenue gain to reduce the rate of corporation tax.
	Amendment No. 7, which the hon. Member for Dundee, East (Stewart Hosie) has tabled, has much to commend it and gets to the nub of the problem, which is the impact that the rate has on competition. It is important to consider the competitive impact of the rates of corporation tax paid in this country. The week before last we heard about the pharmaceuticals company Shire relocating out of the UK because of tax, while United Business Media, which was formerly chaired by the Labour peer Lord Hollick, made a similar announcement today about its domicile for tax purposes. Clearly there is a significant issue with the competitiveness of the UK tax system and how it compares with those of other major economies. That competitive position is not just about rates, but a range of issues, including predictability, stability and certainty.
	My only concern about amendment No. 7 is that, as I understand from its drafting, there will be some uncertainty for small companies, because the rate change will be made only once the report has been laid before the House and voted on. If the House were minded to reject the Government's report, that would delay the implementation of the small companies rate. That would cause some uncertainty—although I gather that Parliament now has a much greater say on tax, thanks to the right hon. Member for Birkenhead (Mr. Field), who seems to have extended parliamentary control—and I am not sure whether, under the circumstances, we can allow that for the small companies rate. I would much rather the Government listened to our proposal and reduced the rate of tax now, rather than waiting until the report is published later in the year. I would therefore urge the hon. Gentleman to support us, should we push amendment No. 1 to a vote.

Mark Hoban: My argument is that one of the problems that the Government have created in tackling the issue is that they have said that the pain should be borne by small companies, but that the gain should be spread widely and thinly on small businesses. My proposal would ensure that the small companies tax rate for the financial year 2007-08 was kept at a stable level. That is in the best interests of small companies. Part of the issue is the complexity of the treatment of sole traders, the self-employed and so on, but in principle small companies should have a lower tax rate and should not be forced to pay a higher tax bill as a consequence of the Government changing their mind about how they deal with their tax affairs.
	The Government have got themselves into that position. The weapon that they have chosen to tackle the issue is crude, will hit small companies regardless of the number of people whom they employ and will be damaging to small companies as a group. That is why the Government should think again about the proposal and why amendment No. 1 seeks to keep the small companies rate at the level that existed for the previous tax year.

Stewart Hosie: The hon. Member for Fareham (Mr. Hoban) asked whether I would be likely to support him on amendment No. 1. Given that my name is attached to the amendment, I should say that it is highly likely that I shall. He may take that for granted.
	Before I speak to amendments Nos. 1 and 7, both of which I support, let me say that I was struck by the fact that the Liberal Democrats have not tabled any amendments on important matters such as business tax, capital gains tax, gaming or the abolition of the 10p rate. There are none until we get to the next group of clauses. Perhaps I am going wide of the mark, but I was surprised by that.
	I rise, however, to speak to amendments Nos. 1 and 7. I offer the simple argument that imposing new and extra taxation on small businesses is fundamentally wrong. Amendment No. 1 would leave the small companies rate at 20 per cent. and amendment No. 7 would give the Government the opportunity to make an assessment and justify their case to the House as to why they believe that increasing the rate to 21 per cent. now and 22 per cent. in the future would be beneficial to business and make it more competitive. It would then be for the Government to explain why other measures in the Budget, or that they announced in the pre-Budget report and previous Budgets, would compensate and ensure that business competitiveness remained as it is or would get better. I have to say that I am sceptical of whether the Government could come up with an assessment to prove that, and I am very suspicious that they could come up with an assessment that would say anything other than that business competitiveness would be weakened by an increase in the small companies rate at this time.
	Let me explain further. Businesses are operating at a time of high and rising fuel costs, which are unlikely significantly to be moderated at any time soon, and within a framework of high transportation costs—and every haulier I speak to tells me that that is unlikely to change in the near future. Businesses are seeing prices for raw materials skyrocket and I can evidence that with an example from my own constituency, where the Patak's food company factory recently closed down. Swingeing rises in the prices of its raw materials—mainly chicken, rice and dairy products—forced the factory to close as it became utterly uneconomic and completely unprofitable. That resulted in many very loyal workers losing their jobs. Nor is that an isolated or anecdotal story, as we are hearing and seeing similar examples from around the country. Indeed, the hon. Member for Fareham referred earlier to the pharmaceutical company, Shire, and also to United Business Media in respect of corporation tax being too high.
	Given that businesses are also operating in the midst of a credit squeeze, as a result of which any investment they might wish to make and their ability to absorb price increases will have to come from their own resources, now is the wrong time to be putting up tax on the money they make. That is the key point. As prices for fuel, energy, transportation and raw materials go up, and as the external funding that companies used to rely on either dries up because of the credit squeeze or becomes much more expensive, we should not be taxing the money that small companies make in the way that we are with the rise in the small companies rate.

Stewart Hosie: We have focused our attention historically on the main companies rate, which we want to see reduced to 20 per cent. in order to create a real competitive advantage in Scotland. With regard to smaller businesses generally, the right hon. Gentleman will know that we have already taken steps to reduce or remove completely the business rates burden from 150,000 Scottish businesses. However they slice and dice us and from wherever we get that competitive advantage, we need to take such action through budgets. We think that we have done the right thing with business rates in Scotland and we now want to go much further on the main rate of tax. That is the approach that we would take.
	We want the increase in the small companies rate to be reversed, as we believe that would allow companies to make the investment to create the jobs that we all want as we move forwards, I hope at some point, towards full employment. In the current economic circumstances, a tax rise will simply denude businesses of the money that they need to make that investment.
	We know that that investment would happen. The Forum of Private Business survey last autumn—at the time of the pre-Budget report—was interesting in showing that 67 per cent. of members who responded said that, should the rate increase be reversed, it would encourage them to reinvest in their businesses. Almost half said that a reversal would give them the extra funds to invest in skills and training and almost half said that it would make them more likely to seek to grow their businesses. It is highly likely, I suggest, that should the increase go ahead, a much smaller number of businesses would have the cash to make the investment that they were talking about last autumn.
	That is a particular concern in Scotland. At the last count, there were 279,495 businesses in Scotland, of which 273,745 employed fewer than 50 people. Another 3,500 employed between 50 and 249, and only 2,265 are large businesses employing more than 250 people. We believe that the impact of the £1.2 billion—estimated by the CBI—taken as a result of the increase in the small companies rate is likely to be disproportionate in Scotland.
	The words at the time of the Budget from the Scottish Chambers of Commerce, on this matter in particular, were especially telling. Liz Cameron, its chief executive, said:
	"Alistair Darling's first Budget was a missed opportunity for the UK... to boost Scottish businesses. He could have cancelled his plans to increase the Small Companies' rate of Corporation Tax...but he didn't."
	She went on:
	"Promises of future tax simplification and a consultation on limiting the volume of regulation are welcome, but when set against the cold, hard tax rises being experienced by many businesses, they are of little comfort."
	I wholeheartedly concur.
	Over three years, a few thousand pounds extra in revenue yield might add up to a great deal of money for the Government, but if businesses do not have that kind of money, it will stop them buying a new computer, bringing someone in on a Saturday to fulfil an order, undertaking a small marketing campaign or perhaps paying the air fares to a first ever trade show. The Government do not seem to recognise that such small amounts of money are vital for growing businesses and incredibly difficult to earn, particularly in the current economic climate.
	Obviously, I will back amendment No. 1 to reduce the rate. I will reserve my position on amendment No. 7 and wait to hear what the Financial Secretary has to say. I hope that she at least tries to give some justification for why she believes that increasing tax at this time—in view of all the other burdens that businesses face—is somehow a good idea, rather than the bad idea that businesses, business leaders and many in the House believe it to be.

Jeremy Browne: It should also be borne in mind that nearly every large business that employs vast numbers of people started off as a small business. We are not only potentially compromising the small business sector of the economy, but running the risk that tomorrow's big businesses will never be able to get off the ground.

Brooks Newmark: We might quip that the way in which to create a small business under new Labour is to start with a big business. However, on a more serious note, let me say that my right hon. Friend has not touched on another important issue. One of the hallmarks of new Labour has been the chopping and changing, but what businesses like is consistency. Only through consistency of policy, particularly tax policy, can they thrive.

John Redwood: I am grateful to my hon. Friend, although the number of interruptions makes developing the argument as quickly as he would like a little more difficult. He is giving me friendly help and assistance to make sure that I do not forget the important arguments. I am genuinely grateful to him and he is absolutely right that consistency is important. Being able to forecast the tax rate to be paid not just this year but next year and the year after is extremely important when it comes to drawing up a business plan. Any small business that wishes to grow relatively quickly will need access to outside finance; a bank loan, other investors, business angels or another way of raising capital. Any of those would immediately want a business plan, not just for one year but for, say, three.
	An important element of that business plan would be to know what the net profitability would be after three years, after the start-up costs and losses. The net profitability obviously requires an assumption about the Government's tax rate. If the tax rate is changing every year—or goes up every year—it makes forecasting accurately more difficult. It also means that net profits will be less at the three-year stage, or at the five-year stage in a five-year business plan. That makes it more difficult to raise external capital; the banks and others living through the credit squeeze may say that they are unable to help because the net returns are not sufficiently good. Altruistic as many financiers are, they are not normally interested in how much money a business generates to pay the tax man; they are interested in how much money a business generates to pay the shareholders and other private stakeholders, which is why the tax rate is so important.
	I am delighted that my Conservative Front-Bench colleagues are strongly in favour of simplicity and lower taxes and they are right to want a 20p tax ceiling on small businesses. I hope that they will also want—I am sure they will—to bring down the rate of corporation tax on larger companies closer to the 20p band. That is very important to the enhanced competitiveness of Britain that we will wish to see after the damage being done to it by higher taxes and more regulation.
	I trust also that Governments will start to look at the idea, revolutionary for current political times, that we can perhaps save some of the waste and unnecessary expenditure in Governments so that we do not always have to pay for these tax reductions by finding other ways of increasing taxes. It was exactly that route of tax reform that got the Government into such difficulty on the 10p band.

John Redwood: The hon. Gentleman must have forgotten that I am a Conservative MP, so I do not share his unease at all, nor do I accept his premise. I am quite sure that the shadow Chancellor and his senior colleagues are serious when they say that they wish to have a lower-tax Britain than we would have under Labour. I am quite sure that we would have a lower-tax Britain than we would have under a Lib-Lab pact, because we know that Liberals are very liberal with other people's money. Normally in the House they do not make the wonderful case for lower taxes as the hon. Gentleman seemed to be doing this afternoon. Normally they make the case for spending all sorts of sums of public money on things that may not even be desirable and are very often quite wasteful
	There is only one party that seriously believes in lower taxation for the whole of the UK and has a chance of winning a national general election in this country and that is the Conservative party. The Scottish National party now seems to believe in lower business taxation, but it is not in a position to do very much about it because most of the powers on these matters rest in the UK Parliament.
	I say to my hon. Friends on the Front Bench that it is a privilege to be able to support this very sensible proposal for a 20p tax on business. It would be to the benefit of the small business community, and the Government's relations with it if the Government listened, in the way that we hear the Prime Minister is now listening on the 10p tax band. It is another example of how dangerous the Government's tax reform can be, particularly now they are destroying the only good tax ideas that they ever had. I was with them on the 10p income tax band and on zero tax on smaller businesses and they are throwing it all away.

Brooks Newmark: Before I begin my speech, I wish to draw Members' attention to my entry in the Register of Members' Interests. I also wish to make an observation: there is not a single Labour Back Bencher present to contribute to this debate on this extremely important clause.  [Interruption.] I agree that the hon. Member for Stoke-on-Trent, North (Joan Walley) is present, and she may well contribute to our debates later on, but I have not yet heard any contribution on this clause.
	I am delighted to contribute to our deliberations on the vital issue of the taxation of small businesses. Small businesses are often lauded as the real wealth creators and the dynamo of the economy, as, indeed, they are, but it often appears that the Government have taken this image too literally in creating a tax policy for them that resembles a dynamo only in so far as it spins in circles.
	If there was ever any doubt about the Prime Minister's new-found fondness of Blairite political theatre, it was dispelled during this year's Budget, which began the escalation of the small companies rate. After years of debate in Parliament and elsewhere about taxation acting as an incentive to incorporation and encouraging distortion, the Prime Minister's final act of political theatre was to propose a Budget that cut the main rate of corporation tax to 28 per cent. while the small companies rate was simultaneously to be raised to 22 per cent. over three years.
	More than that, years of debate about the disparity between personal taxation and business taxation rates influencing behaviour in undesirable ways by encouraging avoidance were further muddled by the fact that the small companies rate is set to rise above the basic rate of income tax. Having encouraged thousands of sole traders to incorporate, the Prime Minister aims to leave the small companies rate at just 1p below the level where he found it when he became Chancellor. The result of his small business taxation odyssey is that he has boxed thousands of taxpayers into a structure that may no longer be appropriate for them.
	I know that the Treasury's response will be that such people can simply elect to pay themselves a salary rather than dividends, but that neglects the fact that many small businesses face significant increases in administration and compliance costs as a result of incorporation. A former Financial Secretary has quantified that the incentive for a self-employed person earning £30,000 to incorporate and take income from dividends will reduce by £1,000 by 2009-10. For some, that could be just the start of the additional costs. That would, perhaps, be more acceptable if disincorporation were a simple proposition, but it is not. Tax advisers were already warning last year that there was no method for businesses to disincorporate tax-free without Her Majesty's Revenue and Customs making a case that there is a deemed transfer of goodwill out of the business and back to the sole trader.
	If the Treasury's aim really is the encouragement of disincorporation, the Minister will no doubt be able to tell us what steps the Treasury is taking to remove barriers to disincorporation and to assist small businesses to unwind their tax affairs. However, if the Treasury is actively pursuing disincorporation, the Minister must also admit that it has led the small business community on a wild goose chase for the past few years. Indeed, a tax policy that simply brings the Prime Minister back to where he began is certainly a novel interpretation of the role of the business cycle. Unfortunately, his changes have been counter-cyclical, if not counter-productive, and he has committed his successor to increasing the tax burden on small businesses at a time when they can least afford such a move—I made that point to my right hon. Friend the Member for Wokingham (Mr. Redwood).
	The small companies rate has been discussed in whole libraries of paperwork over a number of years. Formerly, criticism has focused on the sporadic nature of the Prime Minister's changes. The Institute of Chartered Accountants was typical in its condemnation, stating:
	"This type of 'stop-start' tax tinkering is creating a climate of uncertainty for businesses."
	Before he moved on to greater things at the Treasury, Edward Troup also regularly called for not only certainty but simplicity. He is notable for having expressed his hope to the Treasury Committee that the Government would "do a graceful U-turn" on the subject of the 0 per cent. small companies rate in favour of incentives that were both better targeted and workable. It seems that this time at least the Treasury has been fruitful in the U-turn department, even if none of the U-turns has been particularly graceful.
	I hope to return to Mr. Troup's influence on policy later in the Committee's deliberations, suffice it to say that if anyone's hand is on the tiller of the ship of state as it tacks and gybes towards the rocks, it may well be his. In the meantime, I want to dwell briefly on the reason underpinning the change of direction by examining the supposedly better targeted and more workable incentives.
	The Prime Minister presented small businesses with a regime of research and development and investment allowances, and that is all well and good for businesses able to make use of them, as my hon. Friend the Member for Fareham (Mr. Hoban) outlined. Unfortunately, the system entrenches an unwelcome distinction between businesses operating in the manufacturing and service sectors—between those that are capital intensive and those that are not. The Government argue that they support targeted reliefs, but perhaps Ministers can explain the justification for favouring one sector over another in that way?

Jane Kennedy: It has been an interesting debate to warm us up for later proceedings. The right hon. Member for Wokingham (Mr. Redwood) lumped this proposal with others and described it as a stealth tax. It is not so stealthy that hon. Members are not protesting against it, as witnessed by this debate. I have noted the fact that the Opposition voted against this measure in the Budget.
	The hon. Member for Fareham (Mr. Hoban), in his opening comments, moved quickly to the differences between us. It is interesting that his right hon. Friend the Member for Witney (Mr. Cameron) was quoted as saying that people should
	"never believe a politician about tax or borrowing, unless they are prepared to take tough decisions about public spending."
	I see the hon. Gentleman nodding in agreement, and I shall return to that comment in my closing remarks. In the mean time, I invite the Committee to consider it.
	The Government announced changes in last year's Budget to encourage investment and innovation. The small companies rate of corporation tax remains highly competitive internationally and has by far the highest threshold in the G7 at £300,000—a fact that one would hope would have been welcomed. The average threshold for other G7 members with a small companies rate is just over £23,000.
	If I may, Sir Alan, I will stray slightly wide—although not, of course, wide of the amendments—in responding to some of the criticisms that have been levelled at the Government and in explaining our proposals and why we seek to resist the amendments. The World Economic Forum ranks the UK as one of the top 10 most competitive countries, ahead of France, Canada and Australia, and the World Bank ranks the UK sixth in the world in doing business, ahead of Germany, France and Japan. We are also first in the G7 for ease of paying taxes, which is an important factor for small businesses. The Government are committed to tax simplification and have announced a package of more than 20 measures, including simplification of the associated companies rules and a new review of CT calculations for small businesses, all of which have been welcomed by small and medium enterprises.
	I welcome the hon. Member for Taunton (Mr. Browne) and his L-plates—I have great sympathy for some of the comments that he made on that score. He stated that the UK tax system imposes significant burdens on small businesses compared with other countries. I do not accept that statement. At the Budget 2008, Her Majesty's Revenue and Customs published details of how it is improving services for small businesses, including progress against its administrative burden reduction targets. According to the PricewaterhouseCoopers World Bank publication "Paying taxes 2008: The global picture", a standard UK company spends less time complying with the tax system than a similar company in any other G7 country. The Government have outlined in their enterprise strategy, published at Budget 2008, how they will build on their targeted net reduction in the administrative burden of regulation by 25 per cent. by 2010. It is therefore wrong to claim that the changes to the small companies rate of corporation tax affect all businesses.
	The UK has around 4.4 million small businesses. Of those, 75 per cent. are the self-employed, and they are not affected by the changes to the small companies rate of corporation tax. Additionally, about 400,000 companies pay no corporation tax, so they will not be affected by changes to corporation tax rates. Of those companies that pay corporation tax, a quarter of large companies and more than half of medium-sized companies pay tax at the small companies rate. It is important to realise that the rate is in fact a small profits rate. Any company with profits up to £300,000 benefits from that low corporation tax rate, regardless of its size.
	Both groups can benefit from one of the other changes in the Bill: the annual investment allowance for expenditure up to £50,000, which has been maligned by Opposition Members. Both the hon. Member for Hoban— [ Interruption. ] I apologise to the hon. Member for Fareham; that is why I increasingly need my reading glasses. The hon. Members for Fareham and for Dundee, East (Stewart Hosie) said that the AIA did not go far enough. The hon. Member for Dundee, East in particular, speaking for the Scottish National party, criticised the AIA's ability to help with the costs of training staff, improving staff capability and other intangible investments. I am sure that he knows this, but it is worth bearing in mind the fact that the cost of employees can already be offset against tax. The AIA will allow businesses to offset £50,000 of capital expenditure in a similar way.
	The Government are expanding and improving Train to Gain, with funding rising to £1 billion by 2010-11. The other forms of investment mentioned by the hon. Gentleman are directly deductible for tax purposes. Indeed, the Government have introduced a generous research and development tax credit, which was picked up on by other speakers, that provides more than 100 per cent. relief—it provides 150 per cent. relief against tax for small companies.
	In debating the amendments, it is necessary to understand the changes to small business taxation in a wider context. The Government have lowered corporation tax rates for small companies over the years in order to encourage investment. We have reduced the small companies rate from 23 to 19 per cent. and introduced a starting rate of corporation tax for those with profits below £10,000.
	Those lower rates of tax resulted in a significant number of people incorporating, not to invest and reinvest in their businesses but simply to extract the profits in a way that reduces their personal tax and national insurance contribution liabilities. I shall not quarrel with the point made by the hon. Member for Fareham that we were warned of that at the time, but those who take such action carry out the same economic activity as they did before they incorporated but pay lower rates of tax than those who remain unincorporated and than employees.
	Such people are not using incorporation as a launch pad for growth. Instead of concentrating on their core business and being advised on how to expand and become more profitable, they and their advisers are treating incorporation as a tax break, which is being subsidised by ordinary taxpayers and the self-employed businesses that suffer a competitive disadvantage. The increase in the small companies rate will reduce the differential in tax paid between the incorporated and the self-employed.

Jane Kennedy: My hon. Friend the Exchequer Secretary reminds me that a figure of 700,000 new businesses is not a discouraging one. The hon. Member for Braintree (Mr. Newmark) asked me a general question about the economic climate in which we have made these changes. As I have just explained, they are intended to re-establish fair competition for those who have been incorporated for tax purposes, and thus enable them to take advantage of arrangements that ought to have been made for investment in business for growth purposes. By levelling the playing field, we will restore the motivation for companies to focus less on how to use incorporation to avoid tax liabilities, and encourage them instead to focus on growing their business.
	The annual investment allowance, as I have mentioned, will target assistance directly on those businesses that invest their profits, regardless of their legal form. As I said, it will be available to all 4.4 million businesses, and will allow them to offset up to £50,000 of capital expenditure in the same way that they offset other costs such as employment costs. To increase the sense of déjà vu experienced by the hon. Member for Fareham, I repeat that the package is important: it was introduced last year, and it is part of the ongoing debate. Simon Sweetman, chair of the Federation of Small Businesses tax committee, said:
	"The Annual Investment Allowance will be significant for small business, both incorporated and unincorporated...and has the added benefit of being a simplification."
	The allowance should be welcomed, rather than dismissed as some speakers have done.
	The Government also announced an increase in the small and medium enterprise R and D tax credit rate from 150 per cent. to 175 per cent.—we will come on to debate that later in other clauses—and that will also help small companies investing in new technology. All these measures taken together refocus tax support on investment rather than on low profits.
	Thank you for bearing with me, Sir Alan. I will now deal with the proposed amendments in detail and in turn. I fear that the amendments would pose a serious risk to fairness. The Government have set out how they will make the tax system fairer across all small businesses, reducing the competitive disadvantage, as I have said, faced by unincorporated businesses. However, the Opposition believe that all 3.3 million of them should continue to be disadvantaged in this way.
	Amendment No. 1 would encourage further tax-motivated incorporation, counteracting the moves towards fairness that the Government support. Furthermore, the small companies rate will still be lower than it was in 1997 when it was 23 per cent., even as we take the proposals forward.
	Amendment No. 2 proposes to maintain the current fraction of marginal relief as 1/40th. In proposing the amendment however, the Opposition have not done their sums properly, setting out a perverse incentive to have profits within the marginal relief band. The fraction for marginal relief ensures that there is a smooth rise in the rate of tax applied to companies with profits between the thresholds for the small companies and main rates of corporation tax. In proposing that the small companies rate and marginal fraction both be maintained at last year's level, the Opposition fail to take account of the reduction in the main rate of corporation tax from 30 to 28 per cent.

Philip Hammond: My hon. Friend is right. It is not just a matter of those who are directly affected by the capital gains tax changes; it is part of a bigger picture of indecision, unsignalled change and lack of proper consultation around the business tax regime. If the Minister got out at all and talked to people in City boardrooms, she would know that that has become a real theme that we should all be seriously concerned about. There are two aspects to the problem. First, there is the substance of the changes that clause 3 introduces, which amendment No. 8 is designed to address; secondly, there is the manner in which they were introduced, particularly the lack of consultation, the lack of clear signposting and the reversal of what had been seen as a long-term commitment by the Government to a lower CGT rate for long-term gains. That, I suspect, as much as the substance of the measure itself, is extremely damaging to the climate for Britain's entrepreneurs.
	By raising business taxes at a time when our competitors are cutting them to support investment and underpin their economies, the Government have undermined business confidence. The abandonment of what was an iconic long-term Labour policy of a 10p capital gains tax rate for long-term gains—announced with great fanfare by our present Prime Minister even before the Labour Government came to office—has dealt a blow to British enterprise and entrepreneurs at a time when we should be promoting it and them.
	I have to say that we have a great deal of sympathy with the sentiment behind amendment No. 8, and I agree with almost everything the hon. Member for Dundee, East (Stewart Hosie) said in introducing it. Regrettably, however, it would not quite do what its sponsors wish it to do. It would indeed postpone the change in the main rate from 40 to 18 per cent., but because the implementation provision that the amendment would introduce covers only subsection (1), schedule 2 would be effective anyway, ending taper relief and indexation. It would, I think, have the opposite effect to that which the hon. Gentleman seeks, in that it would push the effective CGT rate on business assets up to 40 per cent., rather than leaving it at 10 per cent., as he intends.
	For reasons that I shall outline, we believe that the Government need to go back to the drawing board on CGT reform, consult properly and come forward with a comprehensive set of CGT proposals that recognises the need to promote long-term investment and encourage entrepreneurship.
	The amendment calls on the Government to measure and report on the impact of the proposed changes on business investment, the tax burden on investors and the housing market—in particular, the buy-to-let market. As my concerns relate to precisely those areas that the hon. Gentleman outlined—even though my solution is to vote against clause stand part, rather than to support the amendment, for reasons I have explained—I hope that it is convenient for me to set them out now, as time is limited, so that we might not need a separate clause stand part debate.
	It all started with the pre-Budget report; hon. Members will remember that saga. The pre-Budget was brought forward to early October so that it could act as a pre-election Budget—a showcase for whatever bribes the Prime Minister would offer the nation in the election that never was. That plan was torn up when the Prime Minister bottled it and canned the election for reasons that, we are assured, had nothing whatever to do with the opinion polls. The pre-Budget report— [Interruption.] I hear sceptical comments from those on Benches behind me, but I could not possibly comment.
	The pre-Budget report still had to go ahead on 9 October, to save face. So the tax strategy for Britain—the world's fifth largest economy—as we faced the first signs of economic slowdown in the aftermath of the Northern Rock fiasco had to be drawn up on the back of a fag packet over the weekend. Even one of the Prime Minister's closest allies, the hon. Member for Coventry, North-West (Mr. Robinson), described that as
	"policy making on the hoof."
	And it showed—in the lack of consultation on proposals for major changes to business taxation and the complete absence of a coherent narrative as key parts of Labour's long-term business tax strategy were discarded overnight without explanation or warning.
	The words of that pre-Budget report speech were scarcely out of the Chancellor's mouth before they were drowned out by the crashing of gears being thrown into reverse. It was hours before Downing street was briefing against the Chancellor, and just days before the climbdowns began, but the damage to Britain's reputation as a business-friendly economy will take longer to reverse. I say to the Minister that the damage to Labour's reputation as a business-friendly party may be irreversible.
	A common theme is beginning to emerge from the PBR: the systematic subordination of the long-term interests of the country—even as identified and clearly set out by the Labour party—and of our economic future to the short-term political agenda of our Prime Minister.
	The Chancellor's claim that his CGT reforms were made in the name of simplification was as bogus as the same claim made for the abolition of the 10p income tax rate. The proof is in schedule 3, where the complex and still extremely unclear entrepreneurs' relief adds a tier of complication to the system that was supposed to be simplified. This is a missed opportunity for comprehensive modernisation of business capital taxes based on a full, extensive and genuine consultation. In fact, the capital gains tax change was a straight tax grab, originally designed to raise £900 million a year for the Treasury, and a wildly misplaced attempt to address the issue of taxation of private equity-carried interest—something that had been exercising the Government and the trade unions before the pre-Budget report and, ironically, a problem that now looks likely to have gone away all by itself, as the bank credit on which private equity deals depend has all but dried up.

Jeremy Browne: This feature of the Bill is a classic example of what a Government do when they are driven by political considerations rather than the overall requirements of the economy. At the Conservative party's autumn conference in September of last year it put forward a series of proposals on taxation in anticipation of a possible general election—of course, none of them went any way to helping people who had been adversely affected by the doubling of the 10p rate, but we will come to that later. The Government felt they needed to respond to the Conservatives' apparent seizure of the initiative and as a result the Treasury was thrown into an exercise. That process may have lasted only a couple of days but, in that time, the Treasury went from having a blank sheet of paper to drawing up a series of taxation proposals that would have a deep and significant effect on business and on our economy.
	My party has a different view from that of the other parties in this House on how much money capital gains tax should raise and what its role should be in relation to other forms of taxation. The parallel that my party draws is between the taxation rate paid by people who are taxed on their capital and the rate paid by those who are taxed on their income. I am extremely supportive of wealth creation; we need an economy that generates prosperity so that people can prosper in their private lives and so that we can afford to fund key public services. However, it offends the sensibilities of the Liberal Democrats party and many millions of people throughout the country that there are people in Britain, who work in private equity and the like, who pay a much lower marginal tax rate than the people who clean their offices. In our view, that cannot be right.
	Our starting point is that capital gains should be taxed at the same rate as income, as was the case under Nigel Lawson when he was the leader of the Thatcherite vanguard in the 1980s. This is hardly a particularly left-wing policy; it is entirely in tune with what other Governments have proposed in the past. The danger otherwise is that people with good accountants who are able to convert their income into capital will pay considerably less as a share of tax, and we will effectively create a two-tier system: one for those who are taxed on the money they take home at the rates we will now have to get used to—20p and 40p, with national insurance contributions in line with that—and another for those who enjoy much more favourable rates of taxation, despite having considerably higher earnings.

Jeremy Browne: I am grateful for that point, although we are slightly going round in circles.
	There are many benefits of globalisation for which the case is not made sufficiently frequently. Not only is globalisation beneficial for many millions of people in this country—I believe in free trade, and in goods and services flowing around the world, because that generates prosperity—but it offers the best prospect for billions of people in China, India and other Asian countries to have levels of prosperity that they have not enjoyed previously. There is no other way in which they are likely to achieve those standards of living.
	Let me answer the question by flipping it on its head; the onus is on both Labour and the Conservatives to make the moral case for a cleaner who earns £10,000 a year paying a higher marginal rate of taxation than the boss of the company whose offices he or she cleans, who takes home £1 million in the form of capital. There is a genuine debate to be had about that. The hon. Member for Cities of London and Westminster (Mr. Field), who represents large numbers of people—more than any of the rest of us—who fall into both categories just put forward the argument, as do the Government, that it is morally right that cleaning staff should pay a higher marginal rate. I merely inject a note of controversy into the debate by saying that I do not agree.
	The changes made by the Government have resulted in a perverse set of consequences. The Budget proposals reward property speculators while penalising people who have run small family businesses, and many small investors—perhaps employee share scheme holders—lose as a result. In addition, because the changes were introduced in a haphazard, short-term fashion with inadequate consultation, many people have been unable prepare for them in a way that most people would consider reasonable.
	The effect has been, as the hon. Member for Northampton, South (Mr. Binley) described, that people who have worked and planned on the basis of a tax regime that they thought would affect them when selling their small business at the end of their working life, and who had a legitimate expectation that if the tax regime was to change, they would have long enough to change their behaviour to take account of the alterations, have suddenly had the changes sprung on them without adequate time to make the necessary adjustments to their circumstances.
	That introduces what feels like a retrospective degree of taxation. Although it is not strictly speaking retrospective, that would be the outcome for people in terms of the practicalities of selling a business in a short time scale. Even the Government's U-turn—

Brooks Newmark: Clause 6 sets the stage for the first of this year's U-turns from the Chancellor and I hope that we will have a little clarity from the Financial Secretary about the Government's motivations. "Start as you mean to go on" is probably not a maxim on which the Chancellor should rely, as he and the Prime Minister continue to lurch seamlessly from credit crunch to credibility crunch. The Chancellor's last few months in the Treasury would have done the three stooges proud, although I do have some sympathy for the fact that he seems to have become the Prime Minister's one and only stooge when it comes to taking the consequences of unpopular taxation.
	Nevertheless, by 24 January, the Chancellor had already confirmed his first U-turn of the year in an attempt to water down the impact of an 80 per cent. tax rise on small business at a time of increasing economic uncertainty. We are still in the dark about why the Government should have set about, apparently deliberately, undermining their own much vaunted objective for increasing long-term investment in business. The only explanation is a bad one: that it is a knee-jerk reaction against a very small number of individuals in the private equity industry who were making use of taper relief to reduce the capital gains tax charge on their carried interest.
	To give credit where it is due—and notwithstanding the comments made by the hon. Member for Taunton (Mr. Browne)—Ministers were always adamant in their public statements that there was no special loophole in the taxation of the private equity industry, and that was indeed the case. But faced with pressure to close a loophole that did not exist, the Chancellor did the next best thing and threw the baby out with the bathwater by abolishing taper relief altogether.
	We are entitled to ask about the principles underlying the change as much as about the impact of the change itself. Was it simply designed to target a small number of individuals—with the damage to businesses and angel investors viewed as the necessary price to be paid—or was there a genuine principle and strategy involved? What, indeed, is the Government's current direction of travel on the taxation of business, the stability and predictability of that taxation and the encouragement of long-term investment? Those are legitimate questions that still need to be answered.
	What we do know is that clause 6 represents a tax hike of some £700 million, even with the last-minute concessions subsequently offered by the Government. But the potential cost to the economy of the proposed changes dwarfs the money that the Treasury hopes to raise through them. Capital gains tax has never been a big revenue raiser and the tax base has never been very wide, raising just £3.8 billion from 266,000 individuals in 2006-07, rising to £4.8 billion on the original forecast of the pre-Budget report. Nevertheless, it has significant potential as a disincentive to long-term investment—the point made by my hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond).
	The only benefit to the economy presented by the Chancellor's erratic driving on capital gains tax reform has been the thousands upon thousands of hours of overtime worked by lawyers, accountants and financial advisers up and down the land as they struggled amidst a dearth of information in order to give their clients reliable advice in advance of 6 April. That is quite some contribution, although it is presumably not the outcome for which the Treasury planned.
	Weighed in the balance against these detriments are two attempted defences from the Chancellor—consultation and simplification. Announcing the entrepreneurs' relief on 24 January the Chancellor was the model of calm reassurance:
	"Of course we will listen to what businesses—small and large alike—have to say. It is important that we introduce the right tax regime."
	That is what he said as he frantically back-pedalled away from the tax regime that he had announced just months before. But he only cocked his ear to listen to the business community after he had announced his proposed change in the pre-Budget report and discovered that those in the business community felt that he was cocking his leg at them instead.
	I am intrigued by some of the rationale that was deployed to explain away the lack of consultation. The Treasury claimed, for instance, that there had been no consultation because the change to CGT was a simple rate change and not a reform. In an amusing contrast, the explanatory notes for the draft legislation were subsequently headed "Capital Gains Tax Reform". Leaving aside the fact that the rate change was some 80 per cent., does the Treasury still believe that clause 6 is a simple rate change and not a reform?
	I do not wish to stray wide of what we are discussing today, particularly as much of the detail which appears in schedule 2 and the proposed entrepreneurs' relief in clause 7 will be discussed in more detail upstairs, but it is nonsense to suggest that it was proper that such a radical increase in the burden of taxation should have been proposed entirely without consultation with the business community.

Brooks Newmark: The hon. Gentleman makes an excellent point that supports my argument.
	The second canard in play here is that clause 6 represents the best intentions of good government in implementing a desirable tax simplification. This figment also crept bashfully onto the record on 24 January when the Chancellor announced:
	"I am trying to simplify the tax system, which is something that people in the House and outside have asked successive Chancellors to do."—[ Official Report, 24 January 2008; Vol. 470, c. 1635-6.]
	The Chancellor has apparently convinced himself that he was merely being responsible and responsive to the House, or perhaps the new clutch of special advisers from next door in No. 10 have convinced him. Indeed, the Chancellor is setting new records in responsiveness to the House, given the sheer number of times that he has had to come to the Dispatch box to apologise, explain and dilute.
	What the Chancellor is not doing, and what the Government have so signally failed to do while in office, is simplify our tax law. I need point no further than the 1,148 pages of explanatory notes, in four volumes, that accompany this year's two volume Finance Bill. Perhaps the Government should look at offsetting the carbon cost of printing it. But only a Labour tax simplification could introduce new complexity, as we saw last week with the other major "simplification" in the Bill that has gone a little awry.
	In the spirit of both those supposed simplifications, it might be worth dwelling a little on the question of winners and losers. Richard Mannion, writing in the journal of the Chartered Institute of Taxation, put the point quite simply:
	"While any significant regime change like this would be likely to result in both winners and losers, the main losers on this occasion were business owners and entrepreneurs, the very people that the previous chancellor had set out to encourage with the effective CGT rate of 10 per cent. on business assets."
	Once again, it is not so much question of whether there are losers but of who the losers are.
	The Government's erosion of competence has been matched by the erosion of confidence in their handling of business taxation. As John Wright, chairman of the Federation of Small Businesses, has said, the botched CGT changes have
	"seriously eroded small businesses' trust in the government."
	So, if, "Start as you mean to go on" is not exactly a guiding light for the Chancellor, perhaps he should stick with, "If it ain't broke, don't fix it."
	The UK is in the throes of a liquidity crisis in the wholesale markets, which is severe enough to warrant billions of pounds of taxpayer-backed intervention from the Bank of England. One of the side effects of the liquidity crisis is the potential impact on retail investor confidence as investors fall back on safer, more liquid investments. In the middle of that turmoil, the Government are doing away with a tax relief that was designed to encourage people to invest over the long term in relatively illiquid asset classes, such as unquoted shares, family businesses or venture capital enterprises.
	We should not forget that the Prime Minister's introduction of taper relief was couched in uncompromising terms. He said:
	"We must do more to increase the quantity and quality of long-term investment. The capital gains tax regime that we inherited rewards the short-term speculator as much as the committed long-term investor."—[ Official Report, 17 March 1998; Vol. 308, c. 1101.]
	Yet at the very time that the Government ought to be looking at whether it would be appropriate to offer additional inducements to long-term investors, they are moving in the opposite direction.
	The Chancellor's January statement also put a great deal of store in the capital gains personal allowance. He mentioned it several times, as if to suggest that its continued existence compensated in some way for the 80 per cent. tax hike. However, a personal allowance does nothing to encourage an investor to hold illiquid assets when gains cannot easily be crystallised and netted annually. It was soon clear that the personal allowances alone were totally inadequate when it came to the expectations of the business community, so another fudge was cooked up.
	How are we to greet the compromise? Richard Lambert, the CBI's director general, is quite clear about the merits of a change that is
	"superficially quite clever and on the surface might seem like a relief"
	but that results in even the smallest business owner being worse off than before. However, I prefer to look directly at one of the architects of the scheme. Edward Troup, who is now director of business and indirect tax at the Treasury, wrote witheringly in the  Financial Times in January 2002 complaining that the Prime Minister's original introduction of taper relief had pandered to political lobbying and had
	"created further distortions and directionless complexity."
	He continued:
	"Pragmatism has been replaced by opportunism masquerading as principle. The clock should be rolled back. A single rate of, say, 20 per cent applied across the board would stop the worst excesses of avoidance without creating undue distortion."
	Mr. Troup might have got his single rate but he also got more than he bargained for in the way of "directionless complexity" from his political masters.
	It has become easy in recent weeks to poke fun at a Government who are at war with themselves. It is perhaps more worrying that Treasury officials do not seem to be on the same page as Treasury Ministers. Officials seem to like the idea of brutal simplicity, even when the burdens fall disproportionately. Ministers, on the other hand, do a good line in opportunism masquerading as principle. Members of the Committee will know of my background in the venture capital industry and I want to conclude my remarks by focusing on the support available to serial angel investors.
	The Chancellor has proposed a complex package that includes a lifetime capital gains tax allowance for capital gains arising from the sale of business assets. I have no doubt that after months of confusion the scheme is of some comfort to small business men who have a lifetime of work invested in their family businesses. It does absolutely nothing for the committed business angel who shoulders the burden of risk, time and again, to help with the process of genuine wealth creation in this country.
	There is little sense of continuity in the Government's thinking on that point. It is only necessary to look back to the Standing Committee debates on the Finance Act 2002, when the qualifying period for taper relief was shortened. My hon. Friend the Member for Fareham (Mr. Hoban) hit the nail on the head when he asked the then Economic Secretary a simple question:
	"If long-term investment is good and short-term bad, why are the Government shortening the taper?"
	The answer he got was very clear, if a little short-tempered. The then Economic Secretary said
	"venture capitalists and other early-stage investors frequently invest with a view to realising their capital in less than two years, so we have designed the taper specifically to take into account the natural mode of operation and interests of venture capitalists, and their investments in start-up businesses."—[ Official Report, Standing Committee F, 21 May 2002; c. 170.]
	In other words, the relief had been retooled to benefit the very group that seems to have sparked off the latest ill-considered reform of CGT, which is the group that will now see little benefit from a lifetime capital gains tax allowance.
	When Mark Neale, managing director of budget, tax and welfare at the Treasury, gave evidence to the Treasury Committee following the pre-Budget Report, he took pains to emphasise how "carefully" the Treasury had considered the Chancellor's original announcement. His reasoning—that taper relief was a successful short-term incentive which had outlived its usefulness because it attracted tax avoidance—was something of a new departure for the Treasury and broke with years of momentum.

Jane Kennedy: The hon. Gentleman makes a fair point, and I know that those concerns have been expressed. I hope to be able to respond to them in a few moments, if he will allow me, but first I should like to develop my response to the overall debate in a more structured way.
	The hon. Member for Runnymede and Weybridge said that simplification was a good and valuable thing, but that it should not be undertaken at all costs. May I tell the House that the reforms will replace—and this bears repeating—a significant amount of structural complexity built up over many years with a simple system based on a single headline rate and focused relief for entrepreneurs? That is a change well worth having. Entrepreneurs' relief has been targeted to deliver a special 10 per cent. rate for business and enterprise, which is essentially what businesses have asked for. Indeed, when the pre-Budget report was published, stockbrokers Killik and Co. was quoted in the  Daily Mail 10 October as saying:
	"This has to be a positive move for investors. It will lead to many choosing to sell investments when it's right to do so rather than holding on to investments in order to avoid a penal 40 per cent. tax."

Question put, That the amendment be made:—
	 The House divided: Ayes 68, Noes 302.

Justine Greening: My hon. Friend makes a helpful contribution, which illustrates the two key points that I want to make today. First, now is not the time to increase tax further on the industry through raising the amusement machine licence duty. Secondly, it is ironic that a fair amount of the Exchequer's tax revenue, which it already, and no doubt willingly, takes from the industry is under threat because the businesses are threatened. The concerns that my hon. Friend expressed are reflected in early-day motion 840, which 155 Members from all parties have signed.
	The British Amusement Catering Trade Association has assessed that, since the introduction of the Gambling Act, revenues have collapsed by an average of 21 per cent. year on year. The amendment aims to ensure that the trend in collapsing revenues has a chance of being reversed by the Government well before the planned review into the impact of the Gambling Act, which is likely to be long drawn out. That review is currently planned to start in 2009. It could take many months— perhaps longer—so we will probably not see any action until 2010. As the hon. Member for South Thanet (Dr. Ladyman) said in a recent Adjournment debate:
	"We cannot afford to wait for a six-month review, or even a three-month review. My constituents' businesses are going under now. We need to send a signal now."—[ Official Report, 22 February 2008; Vol. 472, c. 744.]
	If the Committee supports the amendment, we would send that signal, which businesses need to give them hope that they can keep going until their problems are properly tackled.
	Without the changes that the amendment proposes, the risk to Treasury revenues is significant. However, let me be clear: for Conservative Members, it is more important that those tax revenues are based on economic success and jobs. I am worried that, by the time we who raise our concerns tonight are proved right, it will be too late to protect those gaming arcade businesses and bingo halls, which are also affected by the changes that the Gambling Act introduced, and they will be lost.
	Unfortunately, the reality is that many of those businesses, which are the lifeblood of many of our most loved seaside and coastal towns, are under pressure and are going to the wall. I am talking not only about gaming arcades that form the very identity of places such as Margate, Blackpool, Portsmouth, Hastings, Great Yarmouth and Ramsgate—I could continue—but about family businesses that have been passed down from generation to generation.
	Such businesses are the lifeblood of their local economies and are often committed to those economies, alongside providing employment, too. They deserve to be supported by the Government. Instead, they are being undermined. The Government will not take note of their cries for help, even though the Under-Secretary of State for Culture, Media and Sport, who has responsibility for gambling, admitted only in February that there was a "serious problem". Ministers seem more concerned with saving face than with saving jobs and supporting local communities. My amendment challenges that most damaging attitude.
	Gaming arcade businesses are being asked to compete with betting shops and casinos with one hand tied behind their back. The stakes and prizes of their machines cannot compete, and such businesses cannot have the number of machines that they need to stay profitable. My amendment aims to challenge that by removing the excessive control over the number of B3 machines to which an establishment is limited, and allowing up to 20 per cent. of any establishment's machines to be B3 machines.
	Without my amendment, there is a danger that the Treasury's tax revenues will fall, not just because of lost amusement machine licence duty but from lost employment taxes from long-standing, often family-run, businesses. My concern is that such businesses are under so much pressure that many are in danger of going to the wall, as we have heard. My amendment seeks to prevent a lose-lose situation—in which everybody loses, not just, most importantly, the businesses concerned, but the Exchequer.

Colin Breed: On the face of it, clause 21 is fairly innocuous in terms of raising revenue, but it has obviously raised huge concerns in many parts of the gambling industry. I represent a constituency with coastal resorts, and although their adult gaming centres and amusement arcades in those resorts are small they form part of the entertainment that many such resorts provide.
	Acceptance of those facilities is slightly mixed. Not all my constituents have gone to the planners saying that they would like more of them. Indeed, demonstrations and campaigns have been mounted to stop certain businesses starting up. We need to strike a balance. Tourists like to use such facilities when they visit, but they are not necessarily the flavour of the month with local residents.
	Nevertheless, such facilities have been around a long time and are, in the main, small family businesses. In the ordinary run of things, merely raising the duty by the rate of inflation would not be particularly onerous. However, as the hon. Member for Putney (Justine Greening) pointed out, a combination of the Gambling Acts, in some cases the smoking ban and the increase in alcohol duties has begun to put a lot of pressure on such businesses.
	It is not only arcades that are affected; small pubs and bingo halls are also affected. I was interested to learn about the restriction to four B3 machines in bingo halls, because some such halls are rather large establishments that hold quite a few people. During breaks, people rush to use the machines, but if there are only four machines, there will be queues of people waiting to use them. Four machines might be an acceptable number in a small establishment, but it is not reasonable in a large bingo hall.
	The Government should consider the whole situation and the effects of different aspects of their legislation and policy. Together, those measures have put particular pressure on such businesses, and it is time to pause and consider the situation in the round. They must consider the effects on businesses and coastal towns, which have many such businesses, and particularly the effects on revenue and jobs. A significant number of jobs are affected; I was surprised to learn how many people are directly or indirectly involved in this large industry. There are great concerns that our efforts to modernise the industry and squeeze a bit more revenue out of it are going to kill the goose that lays the golden egg.

Colin Breed: I could not agree more. That is exactly what has happened. Some of the smaller businesses involved in the gambling industry might have breathed a sigh of relief that the super-casinos were not going ahead, but they have suddenly realised that the panoply of Government policy on this issue is having almost the same effect of potentially putting many of them out of business.
	There is time to address this issue. We support the amendment in the sense that it gives us the chance to pause, consider the matter in the round and see whether there is a better way of dealing with it. The duration of licences could be considered, as could the opportunities for rebates that the industry has proposed. The industry has put forward some very constructive ideas and does not seek to have things all its own way. It seeks a fairer way of dealing with these matters so that businesses can carry on and continue to provide employment, and so that attractions at resorts, including small family businesses, can continue. That would also mean that revenue would continue to come to the Treasury.
	Unless we consider those issues, there will be a rapid demise in many of those areas. Some people who do not support the concept of gambling might think that is a good thing, but many people would be substantially affected by the demise of such businesses. It is time that the Government paused to consider the whole issue, including the effects of the Gambling Act 2005 and other measures, which will be devastating for a significant number of businesses.

Tobias Ellwood: I should like to make a little progress, but I will give way shortly.
	I commend my hon. Friend the Member for Putney (Justine Greening) for introducing the amendment—an important amendment for the industry—and it is good to see that the shadow Treasury team is willing to listen and talk to other Departments. There is a dilemma in that the Treasury team is not willing to see the consequences of tax rises for the industries involved, so I am pleased that we are putting forward a proposal to remove the limit on B3 machines not only in adult gaming centres but in bingo halls. I underline my support for the removal of the £1 stake limit and its return to £2. To place that in its historical context, we had the same situation before the Gambling Act 2005, but there was no problem. They were called section 16 machines—that was old money—but they are now called section B3 machines.
	The hon. Member for Wolverhampton, South-West wanted evidence, so let us look at the Gambling Commission's prevalence study on areas of problem gambling. If we do so, we find that when it comes to machines under the banner of soft gambling, the figure is about 2.5 per cent. If we compare that with FOBTs—fixed-odds betting terminals—found in bookies up and down the country, the prevalence study report shows an addiction to gambling of 11.4 per cent. That is a huge difference, and that is perhaps where we should focus our attention, rather than the soft form of gambling.
	Speaking as the shadow Gambling Minister, let me state the Conservative view that we need the right level of regulation for every type of gambling, whether it be penny arcades, the Crockfords casino or, indeed, internet gambling—another area that we have not even touched on, but I know that you, Mr. Cook, would correct me if I wandered down that road. Let us be clear: where is the evidence from this Government to justify hitting the soft forms of gambling such as bingo and the penny arcades? I do not like the term "adult gaming centres", which has a seedy ring to it. I see the Minister smiling and I hope she agrees that perhaps another term could be used.
	These soft forms of gambling are part of our community, whether in seaside towns like those in my Bournemouth constituency or some of the other places mentioned in our debate. May I place on record my sadness that so few Members are in their places, suggesting that they are not supporting their local tourism industries? That applies particularly to those who signed early-day motion 840, which calls for exactly the changes that we are debating today.
	Another consequence of the Gambling Act 2005 is that we have seen a 21 per cent. downturn in the trade of adult gaming centres. That is what has happened. People are migrating out of the arcade centres and, indeed, the bingo centres and going across the road to the bookies, where there is a different and harder form of gambling, which now meets their desires. I have already mentioned the FOBTs, where £100 a bet can be put down every 20 seconds and scant regard is paid to what is actually being done. That is the consequence—the unintended consequence—of the Gambling Act 2005, which we have an opportunity to amend today. That is why we are proposing the amendment.

Rob Marris: May I caution the hon. Gentleman? I did not say that I was against the amendment, which he seems to assume I was. I was merely questioning whether there was evidence for it. I am grateful to him for supplying some of that evidence, which his Front-Benchers singularly failed to do. The import of the earlier part of his speech was that we have been here before, but I can assure him that I have sat on six Finance Bill Committees in a row, so I have some idea of what has and has not been discussed in this regard.

Mike Hancock: May I first congratulate the hon. Member for Putney (Justine Greening) on what I thought was an excellent speech, putting the case on behalf of an industry that has been badly let down. Throughout the negotiations on the Gambling Act 2005, including the pre-consultation, the Government promised to listen to the case that BACTA and others were putting forward not just to safeguard themselves but in an attempt to work with the Government. When the Gambling Bill came out, it was clear that the Government had totally ignored all that advice and guidance. Labour Members voted gladly to support that, without realising the damaging consequences to the industry. I am grateful to the hon. Member for Wolverhampton, South-West (Rob Marris) for his advice not only to vote for the amendment but, if it fails, to vote against the clause stand part. I think that we should take that good advice.
	If I look around my part of the south coast and south Hampshire—Portsmouth, Hayling island, Fareham, Gosport, the Isle of Wight—all those areas have seen a decline in the arcade industry. Many establishments have already closed or been converted and some are in the process of conversion now. I do not share the concerns of my hon. Friend the Member for South-East Cornwall (Mr. Breed) about people demonstrating or campaigning—it is more about campaigning against new practices, as I do not believe there is a campaign in the country to try to close these operations. The Government are doing an effective job on their own bat by doing that.
	The amendment offers an opportunity for the Government to say that they realise that the industry is important in employing tens of thousands of people—not just in the front line in the arcades, fairgrounds and on piers, but in the manufacturing industry in respect of servicing the machines. Countless thousands of people will lose their jobs. If they were all concentrated in one or two constituencies, there would be a national outcry and the Government would be forced to take action. Because those people are mainly dispersed around the coastline and in the city centres, the Government can choose to ignore the problem—there may only be a few dozen here or there, perhaps 50 in a city like Portsmouth, so they can ignore it. I would say, however, that the Government ignore it at their peril. They not only disadvantage the industry when those arcades are closed down, as many people who enjoy the facilities offered there will be equally disappointed when the bingo halls are forced to close, like the arcades that are already closing.
	The different parts of this industry all have families and voters, so I urge the Government to listen carefully to tonight's debate. They have an opportunity to go some way to start to listen to the industry. They promised that they would, but ignored it in the Gambling Act. If we see what the hon. Member for Bournemouth, East (Mr. Ellwood) talked about—people migrating from arcades to the real danger of heavy gambling, which the hon. Member for Wolverhampton, South-West mentioned; lots of people share his concerns—there will be an even bigger increase in the problem.
	The hon. Member for Bournemouth, East mentioned a figure of 11.2 or 11.4 per cent., but the report says that the figure is 11.4 per cent. and rising. That is the dilemma that the industry has to combat.

Frank Cook: With this it will be convenient to discuss the following: Amendment No. 19, page 2, line 22, at end insert—
	'(6A) The amendments made by this section shall cease to have effect at midnight on 5th January 2009 unless the condition set out in subsection (6B) has been satisfied.
	(6B) The condition referred to in subsection (6A) is that the Chancellor of the Exchequer shall have laid before the House of Commons a statement setting out the measures taken to mitigate the effect of the amendments made by this section and by section 1 (when taken together) on those for whom such effect is a net increase in income tax payable and the House of Commons shall, by resolution, have approved such statement.'.
	Clause 3 stand part.

Philip Hammond: No, I am going to make some progress. The hon. Gentleman has already had one go.
	Let us remember that this is the Prime Minister who was going to restore trust in politics. Well, promising anything to buy off a rebellion four days before an election and then failing to deliver on those promises is not the way to restore trust in politics in this country. Nor is it the way for the Prime Minister to dig himself out of the hole he has dug himself into.
	So the amendment that we have tabled is designed to underpin the deal that we are was done last week, not to undermine it. It should be as acceptable to those who are convinced of the Prime Minister's sincerity as to those who doubt it, and as acceptable to those who wish to live in hope as to those who prefer to learn from experience.
	The amendment would introduce a sunset provision for the changes made by clause 3—principally, the abolition of the 10p rate. It would give the Government the rest of this year to take action and come back to Parliament and report on the measures that they have taken to mitigate the effects of this clause on those who will pay more income tax as a result of the combined effects of clauses 3 and 1—the clause reducing the basic rate of tax. When they had done so, it would require a simple resolution of the House that it is satisfied with the statement made to lift the threat of the sunset provision.
	The amendment is deliberately not prescriptive. It does not seek to tell the Government how they must address this problem; whom they must compensate and to what extent, or by what means. The requirement for approval of the statement by a resolution of the House is intended to ensure that the package the Government deliver addresses the reasonable concerns that have been expressed in the House.

Jeremy Browne: Let's get this show on the road.
	We all remember 21 March 2007, the final Budget delivered by the longest serving Chancellor of the Exchequer in the last 100 years. Labour Members behind him waved their Order Papers and celebrated the fact that they would finally be rescued from the torment of Tony Blair's leadership, to go instead into a sunlit upland of socialism with a leader who both connected with their base and understood, uniquely, and even better than his predecessor, the instincts of middle England—a leader who would return them for a fourth term in this Parliament. They all went off excitedly to the Tea Room to discuss the triumph that was inevitably theirs.
	The leader of the largest Opposition party in the House got to his feet and said, "At last, we have been given a tax cut." He completely failed to notice that the trade-off was that millions of the poorest people in this country, far from getting a tax cut, would see their taxes rise substantially.
	The one eminent figure in that debate—the one party leader—who spoke most clearly on the subject was the then Liberal Democrat leader, my right hon. and learned Friend the Member for North-East Fife (Sir Menzies Campbell), who pointed out precisely the point that has concerned so many Labour MPs in the past few weeks. It just goes to show that there is nothing like an opinion poll or two to concentrate the minds of Labour Members of Parliament. The warning was there and had they stayed to listen to the speeches made by the Liberal Democrats, they would have known that their constituents would be the main losers from that Budget.

Annette Brooke: I should like to take the example of one of my constituents, who is £30 worse off, and is already facing mortgage arrears. Just what are people like my constituent going to do?

David Howarth: Another problem with using the minimum wage is that it will not help two obvious groups of people: first, those whose overall pay is low because they are part-time, even though their hourly rate is greater than the minimum wage; and secondly, self-employed people such as jobbing builders and low-paid freelancers of various sorts—window cleaners, for example—who will not be benefited by an increase in the minimum wage.

Ian Taylor: The hon. Gentleman is making a good case against the Government. Does he accept, first, that movement of the minimum wage would not have an impact until 2009 in any event; secondly, that it is an unwarranted interference with the Low Pay Commission by the Government; and thirdly, that it is an attempt to make industry pay for the Government's cock-up?

Jeremy Browne: My hon. Friend makes an excellent point. The national minimum wage has less effect in London, where wages and the economy as a whole are geared at a higher level because the cost of living is greater. Raising the minimum wage by, for example, 50p will therefore have a less profound impact in this part of the country than it would elsewhere.
	Many questions remain unanswered. The truth is that Labour MPs have been fooled twice on the 10p rate. They were fooled on 21 March 2007, when they waved their Order Papers and decided that the Prime Minister was somebody they could place their faith in to lead their party, and they were fooled again last Wednesday when the Prime Minister wobbled in the face of their threats and they thought that they had achieved a victory, which has turned out to be built entirely on sand.
	Two claims were made about the Prime Minister prior to his taking office, one of which was that he cared deeply about the poor. We now discover that his main obsessions are positioning and political manoeuvring. He is making fumbling attempts to appeal to middle England, which he does not understand. Let us have no doubt about this. After all, what was the motivation for cutting the basic rate from 22p to 20p, paid for in large part by doubling the 10p rate? It was so that the Prime Minister could say to the  Daily Mail and to other representatives, as he saw it, of middle England, "Don't believe for a moment that Tony Blair leaving as leader of the Labour party means that new Labour is dead as a concept. I am still able to carry new Labour—the election-winning coalition which has got us through the last three general election and which can still be held together with me as leader of the Labour party. My demonstration of that is that I am able to trump the Conservative party on the basic rate of tax." That was the motivation—it had nothing to do with the poor.

Jeremy Browne: Listen, and I will explain. Compensating only the people who are net losers because of the doubling of the 10p rate would cost something in the region of £700 million—the figure mentioned by the hon. Gentleman. The total increase in revenue from doubling the 10p rate is far greater than that because someone who is earning £100,000, £150,000 or £200,000 a year will also be affected by the 10p rate. We are talking about two separate measures. The 2p reduction in the basic rate was paid for in large part—I did not say entirely—by the doubling of the 10p rate. A lot of people are net beneficiaries of that change because the 2p reduction in the basic rate more than compensates them for the doubling of the 10p band, which is quite narrow. However, some people on lower incomes—those who are, depending on their circumstances, earning up to £18,000—are net losers. The hon. Gentleman is confusing two separate points.
	I will, however, meet the hon. Gentleman halfway on this point. I find it galling to listen to the Conservatives professing great concern about the poorest in our society. We remember, in March 2007, the current Prime Minister's final Budget as Chancellor of the Exchequer, and the misplaced euphoria of the Labour MPs who thought that this was a man capable of winning a general election. We remember the heightened excitement in the autumn of last year, when there was a possibility that a general election would take place and when it still seemed plausible that the Prime Minister could deliver a victory for the Labour party. The Conservatives had their conference at that time, and the shadow Chancellor made a speech that was extremely well received by large parts of the media.

Frank Field: Chairman Haselhurst, thank you for calling me.
	It has already been an extraordinary debate in that the public have learned something that they did not know before today. It is that no party proposes the reintroduction of the 10p tax rate. The debate is about the way in which we compensate those on low incomes who have lost out through the abolition of the 10p rate. It does not help matters for hon. Members to get up and declare that they were always against or always in favour of the 10p rate. We are dealing with the reality that the amendments do not try to overturn the Budget but are massively concerned about how it protects the poorest who lose out.
	The second issue that we have to decide tonight is whether we accept the line that the Conservative Opposition are following in their amendments, which is that they are greatly concerned about the circumstances of our poorest constituents. Again, it does not help very much that, as I remind the Committee, when we debated whether we should bring forward a package of amendments to last year's Budget that would have given the Government a whole year to work out how it might work, only one Conservative Member supported the lead amendment. Since then he has been expelled from the Conservative party—he is the hon. Member for Castle Point (Bob Spink). We are assured, as the right hon. Member for Suffolk, Coastal (Mr. Gummer) will no doubt confirm, that there is great rejoicing in heaven over one sinner who repents. There are 192 of them repenting tonight, so clearly there will be a great big party up there at the results of this conversion.
	Given the length of the debate already, it would be helpful if I outlined what I thought the agreement was that was made by the Prime Minister and the Chancellor. It would also help if that could be confirmed by my right hon. Friend the Financial Secretary when she speaks. We all know that if we are not to be beguiled by the Tory Opposition, we have a right to take the measure back into our hands when the Bill comes back on Report.

Jeremy Corbyn: I commend my right hon. Friend on his work on the matter. Despite whatever is said this evening, does he feel that the reintroduction of the 10p rate would be a better and fairer way of ensuring that the lowest paid pay less in tax than a complicated form of compensation through a multiplicity of means?

Frank Field: If only hon. Members would let me conclude, Sir Alan, I could answer all these questions.
	The fourth part—not necessarily a central part—of the package is that the Government will look further into the minimum wage. That does not necessarily mean, as many people have interpreted it, changing the rates. The hon. Member for Esher and Walton (Mr. Taylor) talked about imposing costs on employers, but I suspect that all hon. Members who are avid readers of the reports from the minimum wage commission will know that a number of recommendations were made, including lowering the age at which the adult rate should start. Recommendations have already been made, which the Government have not accepted in the past, so it is not true to say that somehow the Government are going to go in with their boots to the minimum wage commission and make them set rates or change their attitudes. The Government may be just a little humble, read the reports and act on them.

Frank Field: No. I am sorry, but I am anxious for others to contribute to the debate.
	The fifth part of the package was about the payments. I have always understood—I apologise if I have misled anyone—that a Government starting from scratch and trying to affect 5.3 million people would not be able to strike an overall deal on the basis of 5.3 million personalised deals; whatever is done will be done to groups and to averages. The hon. Member for East Dunbartonshire (Jo Swinson), who is no longer in her place, spoke earlier, but what she said about the extent of the losses was not true, unless there are more weeks to the month in Scotland than we have south of the border.
	If hon. Members look at the evidence given to the Treasury Select Committee, they will see that the distribution of losses is narrow and that many losses are of about £2 a week. Therefore, I was under no illusion that—starting from scratch—there could be a personalised losses service. Average payments would be made to groups. Some would gain marginally and others would marginally lose, but for most people it would be practically the sum that they lost. That is what the agreement would be about.
	As important as that, I understood that all the different components of the package, when they were announced—they may be announced at different times during the year, as the Government are able to do so—would be backdated to 1 April this year. Those are the six points that I thought were in the package and that I believe will be in the package.
	My concluding comments are to tell the Committee that I have no intention of voting for the Tory amendment. I am not beguiled by it; I am not fooled by it. Although I am pleased about their new position in defending our poorer constituents, the move to ensure that the Government developed their policy—let us euphemistically put it like that—came from this side of the House. We should remain in possession of this package.
	I know that the Financial Secretary to the Treasury, my very right hon. Friend the Member for Liverpool, Wavertree (Jane Kennedy)—who was the first person from the other side of the river to stand up publicly and fight Militant and who was not scared at all of some of the worst fights that we have had to face in our region and beyond—does not need any threatening from our side.
	My final comment is not a threat. I want to say that any Minister, however good, needs as much force as they can have behind them when they are dealing with officials. We on this side would hope to have quite a lot of the information available before we reach consideration on Report. We will have the Select Committee reporting by then. We should have the outlines of how the Government are going to develop that. My right hon. Friend can be as tough as possible with her officials and say that we have another chance to return to our amendment, although I do not expect someone as tough as her to be overcome by any resistance in the Treasury. Should she be, we will be behind her and moving that amendment on Report.

Richard Taylor: It is a pleasure to follow the right hon. Member for Birkenhead (Mr. Field), for whom I have a very high regard.
	The problem of the abolition of the 10p band was brought home to me with devastating clarity at my constituency surgery just last Friday. How is a single childless disabled man, unable to work and under the age of 60, on an income of less than £8,000 per annum whose tax has gone up from just £4 to nearly £10 a week—from £200 to £500 a year—to be compensated immediately? That is why I support the remark made by the right hon. Gentleman that we need answers now for those of our constituents.
	I was pleased to hear a Labour Member moot the possibility that perhaps it would be right to go back to the 10p band. One need only have read yesterday's edition of  The Sunday Times to be aware that under the present Government the richest people in the country have become astoundingly richer, and to feel that it must be possible to find the money from some of our richest people to compensate people like my constituent, on a pitiful wage.

Kenneth Clarke: The country's problems, and, as my hon. Friend correctly points out, the present Government's problems.
	The Chancellor wished to go out on a grand note. As we now know, he was contemplating a possible general election in the autumn after he had established his leadership. Given his alarm about our party—which I am glad to say I think we currently justify, although there have been times in the past when his permanent fear of the Conservative party as an Opposition has been a little exaggerated—he was worried last year, and decided to pull off the master coup of cutting the standard rate of income tax, stealing all the Tory clothes and running away with them, as he saw it, with considerable enthusiasm.
	The trouble was that because of the state of the public finances, the Chancellor could not conceivably afford to cut the standard rate. It was not sensible to do so when he was presiding over deteriorating public finances and a borrowing requirement that he was not even capable of forecasting correctly, let alone financing in any responsible way. So he did not find all the money from the 10p rate; he found some from business. He presented as a tax-cutting Budget what of course turned out to be a tax-raising Budget. That was a frequent performance of the present Prime Minister when he was Chancellor of the Exchequer. Too much of the money was raised by abolishing the 10p rate, so there was an extraordinary transfer of money from some of the poorest earners in the country to quite a lot of the better-off.
	The reason was obvious; the better-off were thought to be more valuable voters in any forthcoming electoral conflict. The low paid, if they vote at all, tend to be safe Labour voters, and anyway they might not notice. Looking back, I can think of no other reason why part of the Budget proposed that the change would not come into effect for 12 months. It was not even legislated for at the time. The only reason for that was, as we all know, that the groups about whom we are talking do not follow the details of Budgets; 90 per cent. of the public do not follow the details of the Budget. People catch up with the Budget when they see the change on their pay slip. They sometimes turn up to their MP's surgery and ask why their tax has gone up because they never grasped the news that they were the victims. That is what has happened. Unfortunately for the Prime Minister, this Bill has come in a year later.
	In this House, a lot of people noticed the measure last year. It took about 24 hours for them to do so because it had not been clearly flagged up. The then Chancellor had tried to bury it, but the debates erupted and the issue got into the press. People began to talk about not a tax cut, but a tax con, one of the popular phrases that rapidly got into the political debate. But none of us at that time came up with a proposal, apart from the right hon. Member for Birkenhead (Mr. Field). There was a very simple problem. I have looked up my own speech to make sure and I did state that as someone of pensionable age and reasonably well off, I had benefited considerably from the Budget. I was suitably grateful; it was very nice of the then Chancellor to put myself and one or two of my hon. Friends in a rather better position. But I did ask why this was at the expense of some of the lowest earning people in the country, as that did not seem to be very sensible. But none of us had a remedy.
	If my analysis is right—that the real problem was that the then Chancellor was cutting the standard rate when he could not afford to do so—the logical explanation would be not to cut the standard rate by quite so much. But in this Chamber we appreciate that all of us, including myself, did not have the nerve to get up and say "You should not cut the standard rate until you can afford to do so. Why don't you put it back again?" We ruled that out, but now comes the uncertainty.
	The right hon. Member for Birkenhead, not for the first time, has achieved an absolute triumph by mobilising what was, I suspect, a much more considerable body of support in his own party than the ones who had the nerve to sign the relevant motion to make the Government do something about it. But he is plainly extremely unclear exactly how the measures will be delivered and, let us be clear, he is talking about a considerable amount of public expenditure.
	We keep talking about how much it would cost to put back the 10p band. I have no idea what kind of sum the right hon. Member for Birkenhead is visualising will be spent on compensating all these people. I will not be so churlish as to ask how this will be paid for, because it could not be paid for at the time of the 2007 Budget. The Treasury sometimes finds itself hit on the head with public expenditure that it cannot afford so the next pre-Budget report or Budget will presumably contain some means of raising the revenue.
	Meanwhile, the difficulty is that all the mechanisms that we have identified are extremely complicated and unsatisfactory. I regard the winter fuel payment as an electoral bribe paid to most pensioners. The money is taken from the right-hand pocket and put in the left-hand pocket at Christmas with a clear message; pretend this is for your fuel bills and spend it wisely. Many Members of this House receive it, as do most Members of the House of Lords, who regard it as a tax rebate. If it is given to everybody between the ages of 60 and 65, those of us who, sadly, have just crept past the age of 65 will be very indignant because most of those people will not be on a 10p marginal rate and quite a lot will be young pensioners, many with full-time occupations and good incomes. It is not very satisfactory.
	The tax credit system is a most unsatisfactory way to proceed. The errors are too great. It greatly benefits some low-earning people, but it also causes great hardship to many low-earning people because of the errors that are made and the pain of recovering overpayments. So, how on earth will we target effectively the people we have in mind? I will vote for the amendment because it puts in concrete form the only thing that matters: that the Government, having agreed to do this, have to come back and produce something that delivers the goods.
	I listened to the Chief Secretary last week, and I can well understand why she has ducked out of the debate today, because last week she did not have the first idea how this undertaking would be honoured. I understand the difficulty: Prime Ministers have a habit of making sweeping promises and then turning around to the Treasury and saying, "Carry on sergeant-major; now deliver what I have promised a majority of the House of Commons we are going to do." So I wish the right hon. Lady the Financial Secretary well, when she rises to speak.
	I share some of the suspicions that have been raised, however. I read the Chancellor's tax letter to the Select Committee Chairman. The recipient, the right hon. Member for West Dunbartonshire (John McFall), is present; I see that he is nodding, and I am sure he agrees that the letter does not cast a great deal of clarity on exactly where we are now going to go. I am also worried that weasel words are already getting in, in the context of what the right hon. Member for Birkenhead has just related to us or has ever said on the subject. In particular, although the letter talks about the pensioners—those over 60—being, perhaps,
	"helped through the mechanism that already exists to pay the Winter Fuel Allowance"
	and says
	"all the changes will be backdated to the start of this financial year",
	when it goes on to talk about the other categories of people affected, there is no suggestion of anything being backdated to the start of the financial year. Therefore, the idea that people will be compensated in full, or even on average, did not even get as far as the Chancellor's letter. As one of the Liberal Members rightly pointed out, all Members are meeting people, so we can all cite people who are—sometimes in the most elaborate, but unfortunate combination of circumstances— hit by this. People come to us and say, "My income has gone down," and they will all have to wait for some period of time before any changes are even announced that will address that, and only the people between the ages of 60 and 65 appear to have got any undertaking of a backdate even by the time the Chancellor wrote this letter.
	We are now all facing up to the fact that, even since the 2007 Budget, things have got much worse for the people we are concerned about. Since the announcement but before the change came into effect, while earnings have not been moving significantly, utility bills and council tax have increased and food bills are rising very rapidly, so everybody's discretionary income is being squeezed and the current situation of the people concerned is worse than we could have contemplated when this measure was first announced. Therefore, the sums— comparatively small, though they might sound to us—that they complain about when they come to see us are a big blow to those people's budgets at a difficult time.
	We need an amendment to hold the Government to what the right hon. Member for Birkenhead thinks they have committed themselves to, but we cannot just take that on trust. The fact that it is almost impossible to conceive of an easy mechanism for achieving this means that we must make sure that the whole thing does not slip away and get lost so that by the time we reach the pre-Budget report in November we are again having obscure arguments with Treasury Ministers who are trying to persuade us that, really, when we look at this carefully, quite a lot of what they said happened.
	This is an appalling episode. Some long nights of work are required in the Treasury to sort out how to compensate most of these people and, equally importantly, how to make sure they are helped fairly quickly this year to deal with the consequences now. If we just let this go today simply on the basis of the assurances we have been told about, and when we find that those assurances almost impossible to understand—we cannot get hold of them and do not know what the mechanisms will be—it would be a great folly.
	I therefore urge the right hon. Member for Birkenhead to vote for the amendment, which just ties the Government down to introducing specific things. The House has risen as a body and said to the Government, "This is not a fair way of paying for the point you wanted to make in the Budget at the time." We must ensure that they come back with a fairer way or a system of compensating those who are about to suffer. I do not envy the Financial Secretary to the Treasury—I see her poised to get up, so I shall allow her to do so in a moment—as she has one of the more ridiculous and impossible briefs to present to us. I hope that she can assure us at least that she will use her best endeavours, and perhaps she will allow the amendment to hold her to things and make her deliver something concrete.

Steve Webb: Before the Minister rises, I wish to make a brief contribution about one of the groups that is losing out from this package—people in the 60 to 64 age bracket. My contribution is inspired, first, by the fact that this group has been in contact with me and with many other hon. Members in largish numbers, and, secondly, by what the right hon. Member for Birkenhead (Mr. Field) said. There is a sense that the House is being asked to accept a pig in a poke for this group and that what those constituents want, above all, is certainty. I do not believe that that certainty has so far been provided.
	I raise the issue of women in the 60 to 64 bracket, in particular, because one of them contacted me having heard the Prime Minister give an interview in which he said that people should not worry because pensioners have been compensated. This lady said, "Last time I looked I was a pensioner, but I am losing out by more than £200 a year". That is because women in that age bracket, although pensioners, do not qualify for the pensioner tax allowance. Such people have contacted me and other hon. Members in large numbers.
	The first question is: what compensation can such people expect to receive? Amendment No. 19 refers to the compensation package and suggests that the 10p rate is reversed unless we are happy with the compensation package. I am not convinced that we will get the very precise answers that women in the 60 to 64 age group want—I shall shut up and sit down shortly so that the Minister can tell us her response.
	When I intervened on the right hon. Member for Birkenhead, I asked what these people will get. What can they expect, supposing that they have lost up to £200 net of other changes? If I understood him rightly, he said that they could expect average compensation. If the group, on average, has lost £100, I take his understanding of what he has been promised to mean that the people involved will get £100. If, for the sake of argument, there were 300,000 losers in this age group, half would still gain and half would lose. Clearly people would lose less than they would otherwise have done, but there would still be a significant number of losers. The first point is, thus, that women who have read in the press that the Government will compensate them might discover, at some point, that the Government will not compensate them in full—they may compensate people in part at some point.
	The second question is: when will such people be compensated? This group ought to be the most straightforward of all to deal with, because if the winter fuel payment mechanism is used, that is probably one of the simplest things that could be done. If we have to wait until the pre-Budget statement, which is traditionally made in November, and then, presumably, for legislation, because we will need to define, in a new way, a very specific group, people will not get their money until 2009. The reason why the winter fuel payment has a September cut-off date is that it takes three months to give everybody the money. Let us assume that the pre-Budget statement is made in November, legislation is made over Christmas and the new year. If we add three months on top of that, it could be well over a year before those women receive partial compensation. That is not what they will have perceived they were going to receive.

Steve Webb: I agree with the right hon. Gentleman on his second point; it is a question whether we believe in the good faith of the Government. Given that the root of this problem was an attempt to deceive people and to portray something in one way that came across in another, the worry is that the presentation of this compensation package is already being spun. I simply do not have confidence that the Government will act in good faith in this regard. On his first point, I suspect that we will divide later on the question whether the clause should stand part of the Bill. The Liberal Democrats will clearly and unambiguously vote against the Government's measure.
	The right hon. and learned Member for Rushcliffe (Mr. Clarke) made a point that I wish to reiterate. Suppose the package costs around £1 billion—because we cannot identify the losers and just give them back their losses—and we end up paying, for example, men in the 60 to 64 bracket who may not have lost out in the first place. Where would that £1 billion come from? Would it come from another tax, thus creating a whole new set of losers? Can we be confident that the compensation package really will compensate people, or will it just create a new set of unjustified losers? The right hon. Member for Birkenhead would be the first to acknowledge that that money will have to come from somewhere. Someone will have to pay the bill for this incompetence and we may find that it is other vulnerable people, unless it is achieved through a progressive mechanism. This Government are not known for using progressive mechanisms.
	Those who heard the news last week may have hoped that they would be compensated. It would be a cruel deception if, having found out only this month that they have lost out, the compensation was not paid until next year and did not even then compensate them for their losses. That is why the compensation package, as so far outlined, is wholly inadequate.

Jane Kennedy: If the hon. Gentleman will allow me to make a little progress, I will be happy to give way later. I am coming to the 10p tax rate in a moment. If he will contain himself, a number of assertions were made and it is right and proper that I should respond to them.
	All pensioner households are now, as has been said, supported by winter fuel payments. Nearly 60 per cent. of all pensioners will not pay any income tax at all in 2008-09. Pension credit has guaranteed a minimum net income of £119 for a single person. While the Conservatives talk about tackling poverty with pretend concern, we have tackled it. It might be of interest of the House to learn that, way back, the right hon. Member for Witney (Mr. Cameron) made a very revealing comment. He said:
	"I long for a chancellor who stands up and introduces a Budget which abolishes all of Brown's endless reliefs and credits—and uses the money to cut tax rates at the same time. 'My Budget has no title', the peroration would go, 'it's your money, spend it as you choose.' Am I alone?"
	We now know that he is not alone, as my right hon. Friend the Member for Birkenhead (Mr. Field) would agree with a lot of those statements, but we would not. We do not accept that that is the way to help the poorest families in this country.
	As the next stage in the process, the package announced in the 2007 Budget changed the tax and benefits system to offer further support for work, families and pensioners. The changes removed the 10p starting rate of tax, reduced the basic rate of tax to 20p, increased the allowances for pensioners aged 65 and over, increased working tax credits to help low-income households and increased child tax credits to provide additional support to families with children. As a result of the changes, child poverty will affect 200,000 fewer than otherwise and households with children in the poorest fifth are, on average, £340 a year better off. Some 600,000 fewer pensioners will pay income tax.
	In the 2008 Budget, the Government were able to go even further, with additional increases in child tax credit and child benefit that remove another 250,000 children from poverty. We will provide additional support to pensioners through the winter fuel allowance.
	I know that the hon. Member for West Aberdeenshire and Kincardine (Sir Robert Smith) wanted to intervene. Perhaps he would like to do so now.

Jane Kennedy: It was not clear at the time exactly what the figures were to which the hon. Member for Mid-Sussex was referring. I have dug out the answer I gave in the House in October to my right hon. Friend the Member for Birkenhead. It set out in detail those people who would benefit from the changes and those people who would lose: it set out the numbers, and the amounts per week anticipated for changes in income. That is quite clear, and I have never sought to deny it, so I do not know what the right hon. Member for Suffolk, Coastal (Mr. Gummer) is referring to.

Philip Hammond: As the right hon. Member for Birkenhead (Mr. Field) said, we have had some clarification in the debate, but unfortunately none of it has come from the Financial Secretary, who has treated us to a history lesson and not much else. My right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) commented on the right hon. Gentleman's achievement in that the Government have agreed to do something. The problem for the House and the right hon. Gentleman is that no one is clear what that something is. The right hon. Gentleman, in his e-mail to his fellow Members who signed the amendment last Wednesday, said that the deal involved everyone being compensated in full and would be backdated to 6 April 2007.

Philip Hammond: If the right hon. Gentleman will allow me, I shall address some of his other points. As I understand his comments this evening, he has said that the average loss for the group of people losing as a result of the measures is £2 per week, but the maximum loss is £256 per year. However, as I understand his comments this evening, the commitment that he thinks he has achieved from the Government now is to compensate only at the average loss of £2 per week. So there will still be people out there who have lost as much as £152 a year as a result of the measures, even if the Government deliver on the possibility of compensating them all at the average rate.
	The right hon. Gentleman hoped that quite a lot of the information would be available by Report, but nothing that we have heard from those on the Government Front Bench gives us any confidence that we will have a clear picture of the total package of compensation by that time. He has urged Labour Members not to be beguiled by the Conservative amendment, which the Financial Secretary has referred to as a wrecking amendment. I say to her and the right hon. Gentleman that it is not a question of being beguiled and that it is not a wrecking amendment.
	The amendment should appeal as much to those who have confidence in the Prime Minister as to those who do not. It is an insurance policy for the House. It is a mechanism that would allow the House a guaranteed way of coming back to this issue if it is not resolved satisfactorily. The amendment would require the Government to tell the House what they have done, and they will not be in a position to do that by Report. I suggest to the House that it needs this insurance policy to ensure that the deal that the right hon. Gentleman, to his great credit, sought to do with the Prime Minister is delivered on by the Prime Minister and is not reneged on by the Government once this week's elections are out of the way and the immediate inconvenience of a Labour Back-Bench rebellion is off the books.
	We need to hold the Government to account and it is the job of the Opposition to put in place the mechanism for holding them to account. That is what the amendment does, and I urge my right hon. and hon. Friends to vote for it this evening.

Hugh Bayley: The past 18 months have not been easy for NHS staff in North Yorkshire and York. Despite the Government's substantial real-terms funding increases each year—including this year's increase of £51.7 million to the North Yorkshire and York primary care trust, which, for the first time, took its allocation to £1 billion—clinicians and managers in York and other parts of North Yorkshire had to close beds and restrict access to some treatment such as assisted conception and stripping varicose veins in order to reduce deficits built up by some acute trusts and, principally, by the PCT.
	The frequently critical but not inaccurate press coverage of those events over the past two years or so obscures the fact that the North Yorkshire and York area is one of the healthiest places in Britain to live, with some of the best health services. We have the longest life expectancy and the lowest cancer death rate in Yorkshire. The stroke death rate, for example, has fallen 60 per cent. over the past 11 years, from 28 deaths per 100,000 to 11. That is the lowest stroke death rate in Yorkshire. The coronary heart disease death rate has fallen 50 per cent. over the same period, from 90 deaths per 100,000 to 45.
	Treatment rates in North Yorkshire and York are generally good. The percentage of patients treated within 18 weeks of referral is better, at 71 per cent., than that in the Yorkshire region as a whole, at 67 per cent. Those figures are from January 2008. The treatment rate in North Yorkshire and York is better than that in nine of the 13 other PCTs in the strategic health authority area.
	In my PCT, the rates for the replacement of joints and for vein stripping are both in the top quartile. In other words, more patients as a proportion of the population receive those operations than is the case in most other parts of the country. Our PCT is in the top 25 per cent. of PCTs in that respect. Overall, NHS services in North Yorkshire and York are significantly better than they were 10 years ago.
	I pay tribute to the clinicians and managers in North Yorkshire and York who have worked together to reconfigure services in order to overcome the deficit while protecting essential services to patients. They have had to make some difficult decisions to deliver more than £20 million of savings in the year just passed. I believe that they need to be rewarded for how they made those difficult decisions to stabilise and improve health services in North Yorkshire.
	The Department of Health needs to provide incentives to encourage clinicians to deliver a turnaround strategy when it is needed. North Yorkshire and York PCT faced the biggest PCT deficit in England. If there is a need for incentives anywhere in the country, they are certainly needed in my PCT area.
	The PCT came into being on 1 October 2006, and it inherited a deficit of £35 million from the four predecessor PCTs in North Yorkshire and York. It is important to realise that that deficit was inherited from other managers of other health authorities, not built up by the PCT itself.
	In 2007-08, the PCT turned a financial deficit of £13 million from the previous year into a surplus of £14 million at the end of March this year. In the past year, the PCT has achieved run-rate balance. That is to say that in the past year its expenditure each month was less than the income it received. That is a remarkable achievement—a remarkable turnaround for the PCT which had the worst deficit in the country. It is an achievement by the clinicians and managers who have worked together to deliver that result. It means that North Yorkshire and York PCT is no longer drawing resources away from other areas in Yorkshire with a lower life expectancy or a greater burden of disease.
	I understand and support the Department of Health's policy requiring health trusts that overspend to bring their books into balance. I recognise that without that discipline every trust would overspend, and the Government would lose the financial control that they exercise on behalf of the taxpayer. However, now that North Yorkshire and York PCT is in recurrent balance, I think the Department should consider modifying its policy to a limited extent and write off the remaining historic deficit which is about £19 million.
	This year the regional authority—the strategic health authority—is expected to deliver not a deficit but a surplus of some £200 million to £300 million, so it could afford to write off some, or all, of the North Yorkshire and York deficit from a much larger region-wide surplus. It could do so without drawing resources away from other areas, because those other areas currently do not have the capacity to spend all the money that they are allocated. I hope very much that they will develop the capacity to spend their allocations in full in future years, because they have health needs that demand it. However, North Yorkshire and York will not inhibit higher spending elsewhere in future years, because its spending is now in balance.
	I realise that I am asking for a change in Government policy and I accept that that is unlikely to happen on the Floor of the House this evening, but I ask my hon. Friend the Minister whether she, or one of her ministerial colleagues, would meet me to discuss my proposal.
	There is another matter that I should like to discuss at such a meeting: the NHS funding formula. North Yorkshire and York PCT currently receives less funding per capita than any other PCT in Yorkshire and the Humber. Last year it received £1,306 per person, compared with £1,621 per person in the best-funded PCT in Yorkshire, and an average of £1,484 per person in Yorkshire as a whole.
	One other PCT in Yorkshire receives almost the same level of funding per capita as North Yorkshire and York. East Riding of Yorkshire PCT receives £1,316 per person, just £10 more than North Yorkshire and York. Both PCTs receive substantially less funding per capita than any of the other Yorkshire PCTs, and they are the only two PCTs in Yorkshire that are in deficit. I believe that there is a connection between those two facts. The better-funded PCTs are unable to spend their higher allocations, which is why there is such a significant surplus across the strategic health authority as a whole. Although they spend more per person than the north and east Yorkshire PCTs, with good reason—they have a greater burden of ill health in their areas—the north and east Yorkshire PCTs remain in deficit, at least partly because of the lower allocations per head in those areas.
	Some of the costs which are directly related to rurality, such as transport costs, are not reflected in the current funding formula. North Yorkshire and York is a very big area. I can tell my hon. Friend, who is a London Member of Parliament, that from east to west is 110 miles, as far as from her constituency to Bristol, and from north to south is 90 miles, as far as from her constituency to Leicester. It is a very big area indeed. Whereas in urban areas an ambulance might travel 3, 4 or 5 miles from the ambulance station to a patient and then to a hospital, in North Yorkshire and York it might be a 50 mile trip. Given the level to which fuel prices are rising, it is easy to see why the cost of the ambulance service in North Yorkshire is rising faster than the cost in other parts of the country.
	It is not just the ambulance service and ambulance staff who have to travel. My hon. Friend the Under-Secretary will know very well from her professional background in the NHS that district nurses, health visitors and Macmillan nurses travel to see patients in their own homes. Their fuel costs will of course be higher than in urban areas but, significantly, the time they spend travelling, which may be half an hour to see a patient in a rural part of north Yorkshire, is time that has to be backfilled by additional members of staff. We have, for a population of around 1 million, four district general hospitals that are 30 or 40 miles apart. We have 10 community hospitals, which would not be needed in a less rural area. All that adds to the costs of the PCT. I hope that we can discuss the funding formula if my hon. Friend the Minister agrees to meet.
	York itself has within its boundaries some areas of severe deprivation—wards that are among the 20 per cent. most deprived wards in Britain—yet those areas do not receive the same level of funding per person as equally deprived areas or, indeed, less deprived areas in west and south Yorkshire. The PCT wants to use the growth money it is receiving from the Government to improve services, as they are being improved in other PCT areas in Yorkshire, and to provide additional resources for the most deprived communities in York—and, indeed, in Scarborough, where there are also some very deprived wards. However, it cannot do so at the moment because the growth money is used to deal not with the service improvements that are expected by patients across the country, but in clearing the deficit.
	York's practice-based commissioning is very significantly improving primary and community care services in York. The PCT's strategy for clearing the deficit has depended heavily on reducing provision in hospitals and transferring some services to community and primary care settings where those services can be provided better and closer to patients. The York health group—that is to say the practice-based commissioning team—and the local medical committee have worked with the PCT to enable that reconfiguring of services to take place for the benefit of patients, while contributing significantly to the savings that the PCT has made in the past 18 months, which in the past year have led to its getting back into recurrent balance.
	York has some very good GPs and some very good GP practices, and many of the services that Lord Darzi proposes in the new polyclinics, such as minor surgery, dermatology, audiology and some ophthalmology services, are already provided by GPs in practices in York. It is important for the Government to recognise that the health needs of all areas of the country are not the same and that a one-size-fits-all health strategy would not be appropriate in relation to polyclinics. A polyclinic provided by an independent contractor will certainly be the right response to health needs in some places, but if our PCT ended up top-slicing the resources for GP surgeries in York in order to pay for a polyclinic, it could undermine the very services that are now provided in primary care by GPs and practice nurses that have enabled the PCT to get its budget back into balance.
	I ask the Minister to ensure that there is not a quick move within York to a polyclinic, and particularly not to one provided by an independent contractor, which would disrupt the reconfiguration of services which, by means of a strong partnership between the clinicians, PCT managers and managers and clinicians at the acute trust, has done so much to improve services and reduce costs in York.